Panic disorder (PD) is a prevalent and debilitating condition. Efficacious treatments for this condition exist, including several classes of medication. Cognitive behavioral therapy, (CBT) has been shown to be efficacious for PD. However, over 30% of PD patients decline medication, and nearly one half do not remit from CBT, there is a pressing need for additional nonpharmacologic approaches. We have developed and tested a manualized psychodynamic psychotherapy for panic disorder, Panic Focused Psychodynamic Psychotherapy (PFPP). We have completed treatment development stages I and II and have demonstrated efficacy in 40 patients with DSM-IV primary PD in comparison with Applied Relaxation Training (ART). This application will investigate the indications, overall utility, and mechanisms of action of PFPP. We are conducting this study at two sites with broad inclusion criteria, to recruit sufficient patients, and to increase generalizability. The project has 3 aims: 1. Acute Efficacy. (Primary Aim) To conduct a 12-week randomized controlled trial of Panic-Focused Psychodynamic Psychotherapy (PFPP), and CBT, versus Applied Relaxation Training (ART) in a 2:2:1 ratio of randomization in 233 subjects with primary PD with or without Agoraphobia. 2. To compare the sustained effects of these two treatments in these patients at 12 months post-treatment termination, 3. To test specific mediator and moderator hypotheses for PFPP and CBT. We shall enroll 233 participants, ages 18 to 70, who meet DSM-IV criteria for PD with or without Agoraphobia as their primary diagnosis. All subjects will be randomly assigned to 19-24 sessions over 12 weeks of CBT, PFPP, or ART in a 2:2:1 ratio. Patients will be followed monthly with standard rating instruments for 12 months post treatment termination to compare durability of effects. Subjects in the ART condition will be given their choice of CBT or PFPP (nonrandomized) if they do not respond at treatment termination.